We expect that the increase in production per week would not exceed 200 units (100 orders and 2
additional columns per order. 2 is used as an estimate of average columns per BTO order).
The cost of the columns is assumed to be $125 (this is the average cost for the type of column with the
highest average cost)
Over the time span of a year (52 weeks) the expected number of additional columns produced is:
Increase in Column Inventory: 100 x 52 = 5,200 columns/per year
Increase in Capital required: 5,200 column x $125/column= $650,000
Increase in Inventory holding cost: $650,000x 8%= $52,000 per year
Reduction in set up
Currently the average setup time for packing process is 20-30 minutes. In reality this time would be longer for BTO products due to the lower yield rate and the lack of experience. The hourly cost for packing machine is $40.46 and the hourly wage for employee is $39.62 according to the latest update in Wexford. For calculation purpose it is assumed in the first year there will be no reoccurring BTO orders for each SKU. In the next year the BTO order can be eliminated for BTO SKUS with stock. In reality this
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process will take place in a time span of a few years instead of 2. However as a preliminary calculatic
these details are approximated.
Setup Cost: ($40.46+$39.62)/hour x 0.5 hours/order = 40.04/order
Reduction in Setup Cost: 52 weeks x 50 Order/week (half of 100) x $40.04/order = $104,104 per year
From a cost point of view it is likely the reduction in set up cost would pay for the increase in invento holding cost.
Service Level
With the new policy it is estimated that 50% of the BTO orders would be in stock. As a result the expected increase in service level is 2.5% of the total sales. This is a great achievement for a product with high service level.
Table 5.1 Results of the simulation using the 24 month historical data for simulation. Set Up Cost
Inventory Cost
Set